The evolution of prepaid debit

Maybe it’s a function of the Durbin act, which explicitly excluded prepaid debit cards from the massive decrease in debit interchange fees that it imposed on all other debit cards. But whatever the reason, prepaid debit cards are huge right now. One panel at today’s conference — a panel which wasn’t even meant to be about prepaid debit, but rather much more broadly about “Ensuring Consumer Access to the Payments System in the Connected Age” — had four people sitting next to each other, three of whom talked with great excitement about their prepaid debit cards.

One of them, Green Dot, was understandable — prepaid is what Green Dot does. The second, US Bank, was more interesting. Banks tend not to go in for prepaid debit cards very much: they’re not as profitable as checking accounts, and they’re worried about cannibalization. But US Bank’s Convenient Cash card is a notable development in the world of prepaid debit cards, because it’s very easy, if you’re near a US Bank branch, to reload the card for free.

Nearly all prepaid debit cards allow people to top it up using direct deposit — but of course we all end up with money from various different sources, not just the place which sends us a regular paycheck. And if you want to put some cash onto, say, Suze Orman’s Approved Card, then that’ll cost you upwards of $3.50 a pop. (And that’s a charge, by the way, which doesn’t appear anywhere on the card’s official list of fees.)

If you’re looking to get a prepaid debit card as a checking-account replacement, then, and you regularly deposit money into your checking account, then the US Bank offering is particularly attractive. The monthly fees for prepaid debit cards are usually very obvious; the amount you’re likely to end up spending just by reloading it, by contrast, is less clear ex ante.

So it’s encouraging to me that US Bank is offering a product where you can just walk into any branch and reload your card for free, just as you could your checking account. This, it seems to me, is a significant competitive advantage — so it’s weird that the feature isn’t mentioned anywhere, as far as I can tell, on the card’s website. As a result, I don’t know whether you need to go to a teller during bank opening hours to take advantage of this feature, or whether you can use any US Bank ATM which accepts deposits 24 hours a day. In any case, I’m quite sure that other banks are going to follow suit and issue other free-to-reload cards, which should in turn add some healthy competition to the space.

Most exciting of all, however, was the revelation that the US Treasury has been quietly running a pilot program where it issues tax refunds in the form of a reloadable prepaid debit card. It’s called My Account Card, and is a great step forwards in comparison to the non-reloadable cards used for things like benefits payments. Treasury has tried My Account Card in various permutations, and it’s clear that the one with no monthly fee is the most popular. What’s more, you can elect to get not only your tax refund but also your benefits payments on the same card — which means there’s no need at all for any other card.

If Treasury starts sending tax refunds and benefits payments straight to prepaid debit cards around the country, that will be a huge boost to the reputation of an industry which is still often dismissed as the kiddy slopes of banking.

And then, at some point, Simple will start sending its cards out en masse — and the world will see just how powerful and fully-featured such things can really be. Simple’s sales pitch is aligned with that of prepaid debit cards: no surprising fees, lots of predictability. And it’s aimed at a decidedly affluent demographic: you’re not even allowed to join if you don’t have an iPhone or Android phone. The web interface is state-of-the-art, and the card will allow you to do things that other prepaid debit cards don’t even dream of, like peer-to-peer payments and international wire transfers.

You won’t find the word “prepaid” anywhere on Simple’s website: the company is positioning the card as a fully-featured bank account, not as a gussied-up prepaid debit card. But increasingly it’s a distinction without a difference. I just wonder how much those cash reloads deposits are going to cost.